Systemic Risk

Simulate systemic risk with MATLAB

Systemic risk is the risk of collapse of a macro-economic system or an aggregated financial system. It contrasts with individual risks that can be contained within, without harming an entire system.

Systemic risk arises when the failure of a single entity or cluster of entities generates “contagion,” cascading and perpetuating risk throughout financial and economic systems. For example, the 2007 collapse of financial giant Lehman Brothers had a ripple effect throughout the financial services community because of the company’s size and how integrated it was into the health of the economy.